Monday, October 20, 2014

Airbnb’s Positive Impact in New York

By Randolph May and Michael Horney

New York State Attorney General Eric Schneiderman released a report last week on Airbnb’s effect in New York City (NYC). In conjunction with the report’s release, he issued a press release with the following statement: “We must ensure that, as online marketplaces revolutionize the way we live, laws designed to promote safety and quality-of-life are not forsaken under the pretext of innovation. The joint city and state enforcement initiative is aimed at aggressively tackling this growing problem, protecting the safety of tourists and safeguarding the quality-of-life of neighborhood residents.” 
The key findings in the report do not provide convincing evidence that Airbnb’s presence presents a “growing problem.” In fact, they provide the opposite. Some key findings pulled from the Attorney General’s press release read:

“Commercial users run multimillion-dollar businesses”
“Gentrified neighborhoods account for vast majority of Airbnb revenue”
“Short-term rentals are displacing long-term housing options”

The phenomena described by these findings do not have inherently negative effects on the economy – or on NYC’s residents and consumers. In fact, the effects may well be positive.

“Commercial users run multimillion-dollar businesses” implies that individuals are taking advantage of entrepreneurial opportunities and providing valuable services to satisfy a consumer demand. Are traditional commercial hotels not running multimillion-dollar businesses? This finding sounds like increased competition in the lodging market.
“Gentrified neighborhoods account for the vast majority of Airbnb revenue” simply may mean that consumers value lodging in upscale neighborhoods if the price and location align with their desired lodging experience.

“Short-term rentals are displacing long-term housing options” is a market outcome that may simply reflect consumer preferences based on a variety of trade-offs regarding the available price, location, comfort, amenities, and options. In a leading tourist destination like NYC, it is not surprising that many consumers may value short-term rentals over long-term ones. This has a positive effect, not a negative one, because increases in short-term rentals bolster a growing tourism economy. (See FSF blog on Airbnb and European tourism here.)

But, according the Schneiderman, the most important finding from the report is that 72 percent of Airbnb transactions in NYC from January 2010 to June 2014 allegedly were “illegal hotels.” However, as explained in a paper written by Free State Foundation Research Associate Michael Horney and me, “The Sharing Economy: A Positive Shared Vision for the Future,” markets have efficient self-regulating mechanisms. Competition between Airbnb and other home-sharing applications like Roomorama and VRBO and traditional hotels and inns creates a “check-and-balances” system to help ensure quality service. Additionally, Airbnb specifically provides mechanisms to help ensure quality service, such as a feedback rating system and a $1 million insurance policy.

As Attorney General, Schneiderman’s perspective is that so-called “illegal hotels” are automatically bad because his job is to enforce the law. But consumers are not forced to use Airbnb; they voluntarily choose to use Airbnb’s application engage because they value its service. If “illegal hotels” were harmful to consumers than the revenue from Airbnb transactions ($282 million estimated for 2014) would not be increasing year-to-year.

This is not an argument for ignoring valid laws or regulations, even one that may need updating or repeal to account for new digital age circumstances.  But apparently, Airbnb has been compliant throughout the whole investigation by providing the data used to produce Schneiderman’s report.  And, according to a New York Times article, Airbnb spokesman Nick Papas said: “We need to work together on some sensible rules that stop bad actors and protect regular people who simply want to share the home in which they live.”

In our view, New York State’s law which prohibits New Yorkers from renting out their apartments for less than 30 days without being present may not be sensible considering the vast amount of tourism and business that occurs in NYC. In addition to the self-regulating mechanisms it has instituted, Airbnb is also subject to health, safety and consumer protection laws and regulations of general applicability. Therefore, there is no reason to suspect that unsafe and unhealthy conditions for consumers will become prevalent, even in what Mr. Schneiderman characterizes as “illegal hotels.”

The most important conclusion to be drawn from Attorney General Schneiderman’s report may be one he does not intend to highlight: Airbnb is much more important for the NYC economy than most people realize. And this conclusion ought to lead to the derivative conclusion that the 2010 law banning short-term rentals and any other outdated regulatory impediments should be changed to allow for this important economic activity to benefit visitors as well as New York residents who wish to share their residences.

New Blog Says "America leads the world in wireless"

Jot Carpenter wrote a great blog last week for CTIA entitled “London Calling to the Faraway Towns: Sometimes.” Despite what many critics may say, the United States is certainly a world leader in 4G/LTE deployment and adoption, while carriers in London “are still relying heavily on 2G networks.” Carpenter reminds us that US consumers represent 50 percent of all LTE connections worldwide. He presents additional data to conclude that the American mobile broadband market and its “light regulatory” approach should be modeled by European policymakers.

Thinking the Unthinkable - Part II

In Scott Cleland’s recent piece titled, “Silicon Valley’s Biggest Internet Mistake,” he makes an important, too little addressed point: Were the FCC to classify Internet service as a “telecommunications” service under Title II of the Communications Act, this drastic step likely would have significant adverse international ramifications.

In a September 29 paper titled, “Thinking the Unthinkable: Imposing a ‘Utility Model’ on Internet Providers,” I explained, from a purely domestic policy perspective, why FCC imposition of the Title II common carrier utility model on broadband Internet providers should be “unthinkable.” The adverse international consequences provide another reason. 

As Scott explains in his commentary:
Legally, “telecommunications” is what international treaties and agreements regulate like a utility, under the Constitution of the United Nations’ International Telecommunications Union (ITU). Specifically, ITU agreement: ITU-T D.50, recognizes the sovereign right of each State to regulate “telecommunications” as that State determines. Apparently, Silicon Valley interests are blind to the many risks of “telecommunications” regulation to their foreign businesses….[T]he FCC reclassifying the American Internet as “telecommunications” predictably would invite most every other country to reclassify their Internet traffic as “telecommunications” too, so that they could impose lucrative price tariffs on Silicon Valley’s dominant share of Internet traffic into their countries.
This is not an unjustified concern. Indeed, there is rising apprehension in many quarters about the designs of many foreign countries harbor to exert more government control over Internet traffic within their own countries and, indeed, throughout the world through international organizations. Especially at a time when the U.S. has embarked on a process that is intended to lead to a new governance structure for ICANN, the FCC – and the entire U.S. government – ought to be concerned about actions here at home that are likely to be construed by foreign governments as authorizing more government interference in Internet operations.

In fact, this very concern regarding the international ramifications resulting from FCC adoption of net neutrality regulations was expressed by Ambassador Philip Verveer in May 2010 in his capacity as the State Department’s Coordinator for International Communications and Information Policy. Of course, Philip Verveer now serves as Senior Counselor to FCC Chairman Tom Wheeler.

Answering a question at a Media Institute luncheon as the FCC was considering the then-pending net neutrality rulemaking, according to the report in Broadcasting & Cable, Ambassador Verveer said this:
"I can tell you from my travels around the world and my 
discussions with figures in various governments around the world there is a
very significant preoccupation with respect to what we are proposing with 
respect to broadband and especially with respect to the net neutrality."

Most significantly, Ambassador Verveer went on to say that the net neutrality proceeding "is one that could 
be employed by regimes that don't agree with our perspectives about essentially
 avoiding regulation of the Internet and trying to be sure not to do anything to
damage its dynamism and its organic development. It could be employed as a
 pretext or as an excuse for undertaking public policy activities that we would
 disagree with pretty profoundly."

Of course, many others were saying much the same at the time, but Ambassador Verveer was subjected to a harsh attack by Public Knowledge’s Harold Feld for deviating from what Mr. Feld considered to be the established Democratic party line. He wondered how someone as experienced as Mr. Verveer “manage[d] to get so off message at precisely the wrong time.”

I happen to think that Mr. Verveer’s job was not primarily to stay “on message,” but rather to serve the American people by explaining the risks of adopting an ill-advised policy. I have known Phil Verveer since we served together at the FCC in the late 70s and early 80s, and I have a high regard for his qualifications and his dedication to public service. At the time of Mr. Feld’s attack, I defended him. And shortly thereafter, in the context of responding to another of Mr. Feld’s blogs, this time urging FCC Chairman Julius Genachowski to act quickly to adopt net neutrality regulations “to fire up the base before the election,” I called Mr. Verveer a “stellar public servant.”

Nothing has changed my view that Phil Verveer is a stellar public servant. But I do wish he would avail himself of the opportunity once again to explain that the concerns he expressed in 2010, when he was responsible for coordinating international communications policy on behalf of the U.S., are still valid today. Regardless of whatever good intentions may be expressed, if the U.S. government adopts new net neutrality mandates, especially in conjunction with classifying Internet providers as “telecommunications” carriers, other countries may well use such action as an excuse or pretext for, in Ambassador Verveer’s words, “undertaking public policy activities that we would
 disagree with pretty profoundly.”

In other words, despite any protestations to the contrary uttered by U.S. officials, the FCC’s actions regulating Internet providers will speak louder than its words. Other countries, with obvious designs on exerting more control over Internet communications, and over international entities that play a role in managing Internet communications, will seize upon the FCC’s action as a justification.

Scott Cleland is right that this would not be good for Silicon Valley.

I would go further: When then-FCC Chairman Bill Kennard in 1999 rejected dumping what he called the telephone world’s “whole morass of regulation” on the then-emerging cable broadband systems, he concluded, “That is not good for America.”

Dumping the telephone world’s “whole morass of regulation” on broadband Internet providers still would not be good for America today. Indeed, it ought to be unthinkable.

Friday, October 17, 2014

Ebola: Insuring Communications Sector Is at the Table

By Deborah Taylor Tate

On September 18, 2008, I was very proud to provide opening remarks at the first Summit on Pandemic Preparedness. It wasn’t held at the CDC, it was held at the FCC with a huge cross-section of first responders, communications entities, and healthcare professionals. I was so proud to have had a part in focusing on the importance of the communications/media sector in discussing and planning for the potential of a “pandemic” – something most Americans had not yet focused on. In my remarks, I stated:

“As compared to hurricanes, pandemics pose unique communications challenges. Instead of fleeing from a city with severely damaged communications capabilities, in a pandemic our citizens may be sheltering at home, trying to stay in touch with their friends and family and even working – with the possibility that half the workforce will be working remotely – this will place significant demands on an undamaged but nonetheless over-burdened communications network.  How we plan for and respond to such an emergency requires creative thinking by government and industry health and network engineers, which is why I’m pleased to see so many experts here from such a cross-section of genres.”

Thus, today, from my perch as Citizen Tate, I am extremely concerned about the leadership in our present Ebola crisis. This is just the sort of pandemic that I, along with many others, was concerned about in 2008 – over six years ago. And, it’s precisely why the FCC hosted such a discussion so that we would indeed involve all the stakeholders, across a broad spectrum of health, education, communications, media, and public safety participants. And, to plan ahead for a potential future crisis – knowing that we would probably be facing one – rather than in the midst of one.

I hope both the FCC and our ICT partners are dusting off those crisis plans so that if there are strains on our communications system, we will be able to insure prompt, correct, and helpful information is conveyed and that workers will be able to continue to propel this economic engine even during a pandemic whether it hits a locality or region or – God forbid – our entire nation.

And, our broadcasters – and all media – can play an integral role; not in hyper-emotionalizing the issue but in providing basic, simple habits for cleanliness and health safety for the public and even using age appropriate content. In addition, they can be extremely helpful in providing links to healthcare assistance, FAQs on their websites, and even reassuring mental health messages rather than the sensationalism of a very present danger. But one that can be controlled and hopefully resolved.

I am proud of the FCC for recognizing, raising, and planning for the possibility of a pandemic and am hopeful that other federal health officials will follow that lead soon. Especially important is the recognition that these integral providers of communications services must be part of any solution.

Last week Senator Lamar Alexander, Ranking Member of the Health, Education, Labor and Pensions Committee, met with infectious disease experts at Vanderbilt Medical Center to hear directly from healthcare experts on the Ebola issue. He stated that Ebola should be considered “as serious a threat as ISIL.” And, it should.

Whether the common flu or our present Ebola outbreak, our leaders certainly needed to follow the Boy Scouts motto much earlier so that we – as a nation – would indeed “Be Prepared.”

My last sentence in that 2008 speech was almost clairvoyant:

“I pray we will never need to deploy in response to another U.S. tragedy, but being prepared is our first and best defense.”

Wednesday, October 15, 2014

Don't Rain on the Spectrum Reallocation Parade

By Gregory J. Vogt

I have been encouraged by recent government actions that advance efforts to reallocate more spectrum for mobile broadband use. This forward progress is essential in order to get closer to achieving the Administration’s goal of allocating 500 MHz of new spectrum for such use. These efforts should be continued in order to meet wireless broadband demand and to maintain the currently robust competition for wireless broadband subscribers. But there are clouds on the horizon that threaten to rain on this spectrum reallocation parade.

The positive steps include the following.

First, Commissioner Rosenworcel should be praised for “thinking outside the box” and encouraging immediate exploration of additional spectrum at extremely high (above 60 to 90 GHz) and extremely low (e.g., 400 MHz) frequency bands. Concrete proposals in these areas have not yet materialized, but given the lengthy time to market of spectrum allocation decisions, which often take 10 years or more to complete, this forward-thinking momentum is welcome. She has also laudably encouraged recent discussions to make currently allocated spectrum more efficient, e.g. 50 to 100 times more efficient, an enticing visionary challenge.

Second, the FCC is moving forward expeditiously with the AWS-3 auction. The FCC recently announced that more than 80 bidders have filed their initial applications to participate in the auction. Progress also appears to have been made concerning the responsiveness of current government users to advance the speed of vacating their AWS-3 spectrum as well as to improve the efficiency of spectrum sharing. Although in general sharing spectrum with government users is not efficient, it is welcome news that affected agencies appear to be cooperating better than they have in the past.

Third, some in Congress have been focusing on the need for more wireless spectrum to be allocated both on a licensed and unlicensed basis. Legislation introduced by Senator Rubio, for instance, is a forward-looking attempt to reallocate spectrum for wireless use, which I detail here.

Fourth, Chairman Wheeler has announced that he will ask the Commission to consider at the October agenda meeting a Notice of Inquiry exploring how spectrum above 24 GHz can accommodate wireless service. This is another laudable example of forward-looking agency consideration of potential means to bring more spectrum to market.

Despite this good news, dark clouds are circling over the FCC’s incentive auction. Last summer, the FCC established significant elements of the ground rules for conducting an incentive auction, whereby over-the-air broadcasters voluntarily give up spectrum, in exchange for a portion of the price bid during the forward phase of the auction, ultimately reallocating the volunteered broadcast spectrum for mobile broadband use. The FCC adopted a number of rules that skewed the auction in favor of certain bidders. As I outlined here, these favored bidders are seeking yet more favorable treatment in petitions for reconsideration of the incentive auction rules adopted. Granting these petitions would further risk reducing the amount of spectrum volunteered and thus available for broadband use.

Those dark clouds became even more menacing when the National Association of Broadcasters filed an appeal of the incentive auction rules, seeking changes to the way TV channels could be re-packed among over-the-air broadcasters who choose not to participate in the auction. Although the court of appeals was set to entertain expedited briefing, another appeal has put a monkey-wrench in these plans, and serious delays could ensue. The repacking issue will not necessarily delay the auction, but the issue nonetheless poses a significant risk to the auction’s timing, and ultimately could impact the willingness of broadcasters to volunteer spectrum in the first place.

Fortunately, the agency, I think somewhat out of character, has been expediting a number of follow-on rulemakings to keep the incentive auction on schedule. It has clarified its repacking rules, begun addressing use of the guard band, and provided estimates and information to broadcasters as to what revenues they can expect to achieve in an auction. Although some are criticizing this valuation estimate effort, both as to its optimistic estimate of expected broadcaster participation and the spectrum’s anticipated value, the information provided does kick off a serious informational campaign to induce active consideration by broadcasters. The Commission should join in Chairman Wheeler’s apparent desire to keep the incentive auction on schedule.

Despite these positive events, more work must be done. Overall, the amount of spectrum identified to meet the Administration’s goal of 500 MHz is lagging. Recent reports, such as one from Recon Analytics and one from Deloitte, demonstrate that more spectrum is needed in the future.

I commend government for these recent steps to advance reallocation of spectrum for mobile broadband use. But the Commission can and should chase the dark clouds away from the incentive auction so that the interest of consumers can be served: more wireless broadband spectrum to meet consumers’ seemingly insatiable demand for mobile broadband.

Don’t let the rain fall on this reallocation parade.

Monday, October 13, 2014

Don Boudreaux and Todd Zywicki on Hayek

There is a very nice short piece in today's WSJ [subscription required] by Don Boudreaux and Todd Zywicki titled, "A Nobel Economist's Caution about Government." I'm proud to say that Professor Boudreaux, a prominent economist at George Mason University is a new member of the Free State Foundation's Board of Academic Advisors.

The commentary shows why we desperately need our government officials and regulators to demonstrate more humility and less hubris regarding what government can achieve without doing more harm than good. As Professors Boudreaux and Zywicki put it in Hayekian terms: "Government has shown again and again the follow of efforts to centrally direct complex systems."

With Russ Roberts, Professor Boudreaux has a blog, "Cafe Hayek," and he is the author of the forthcoming book, "The Essential Hayek." So, he knows whereof he speaks.

FSF's Randolph May and Common Cause's Michael Copps Debate Net Neutrality

On October 9th, I had the pleasure of participating in a session with former FCC Commissioner Michael Copps at the 2014 Akamai Edge Conference in Miami, Florida, to discuss the hot topic of net neutrality and the FCC’s Open Internet proceeding. Many thanks to Akamai for inviting me to speak at the conference. And thanks too to Michael Copps for engaging in what, by all accounts, was an informative and lively program. Akamai’s innovative products and services have played a significant positive role in fostering the steady growth of the Internet ecosystem across the globe – and the conference’s sessions offered many opportunities to glimpse the prospects for continued exciting advancements. 

To watch the video of the net neutrality discussion, which is posted on Akamai’s website, please click here. In light of the FCC’s consideration of proposals to adopt new net neutrality regulations, the subject obviously is very timely.